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Wednesday, 7 March, 2001, 11:18 GMT
Australia fears recession
Olympic lights in Sydney harbour
The Olympics focused world attention on Sydney
The Reserve Bank of Australia has taken the unusual measure of cutting interest rates for the second time within a month, in an attempt to combat fears that the country is heading for recession.

Interest rates have now been cut to 5.5%, down from the 6% level of a month ago.

Australia appears to have gone from boom to bust

Craig James
Commonwealth Securities
The decision came after key economic data revealed that the economy was in negative growth for the first time in a decade.

Politicians and economists are now debating whether Australia is heading for a recession - technically defined as two consecutive quarters of negative growth.

Recessionary fears were sparked when, shortly after the second interest rate cut, the government revealed that the nation's gross domestic product (GDP) - the broadest economic indicator - was 0.6% lower in the final three months of the year compared to the previous quarter.

Divided outlook

The economic weakness has sparked fierce words between politicians.

"The December quarter detraction of 0.6% is a very disappointing result," admitted treasurer Peter Costello, before blaming the decline on one-off factors including the Olympic games and a spending shift because of changes to the Goods and Services Tax.

The big picture is that the economy stalled and is probably going backwards

Alan Oster
National Australia Bank
But the opposition treasury spokesman was quick to stick the knife in, saying that the data showed that the economy was in severe downturn.

Reserve Bank Governor Ian Mcfarlane also attributed the decline to one-off factors, adding that the RBA believed that the Australian economy should show considerable resilience, even if the world economy was weaker.

Analysts maintained a mixed outlook as to the severity of the Australian slowdown.

"Everything that could have gone wrong in the December quarter did, but the big picture is that the economy stalled and is probably going backwards," said Alan Oster, chief economist at the National Australia Bank.

We'll come out of it reasonably healthily

Frank Gelber
BIS Shrapnel
Commonwealth Securities chief economist Craig James said that the GDP data showed that the possibility of a recession is very real.

"Australia appears to have gone from boom to bust," he said.

But other economists believe that the poor results are unlikely to be repeated in the next three months.

"We'll come out of it reasonably healthily," said Frank Gelber, chief economist at BIS Shrapnel.

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See also:

22 Feb 01 | Business
Tough market for Qantas
04 Oct 00 | Asia-Pacific
Australia's Olympic minister bows out
13 Feb 01 | Business
Greenspan warns on US economy
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